To Lease or Not to Lease

The decision to buy or lease a car in Singapore can leave one scratching their head for answers.

A lease is a long-term rental, a car you’ll have to give back to the car rental company at some point. A purchase is, well, yours for the long haul – more on that later. Often your choice will come down to the absolute difference in cost between the two options.

Typically, if you desire a nicer (i.e. luxury or sports) car, a lease is the way to go without forking out high payments initially. For some, the value of “owning” a car outweighs the importance of a more expensive looking ride, then purchase it is.

Of course, if it were as simple as that the guide would just end here. Good thing we’ve also got monthly payments, insurance and other car costs to cover.

The Cost of Buying VS Leasing

Typically, monthly lease payments are higher than monthly loan payments. However, to take up a 60% auto loan, one has to first a place a 40% downpayment on the car purchase which might come to a hefty $40,000 if the car happens to cost $100,000. The loan segment will be divided equally into monthly payments. Whereas for a lease, only a much smaller security deposit is needed (1-3 months rental) for you to drive away a car.

Well, with a loan your monthly payment will eventually hit zero, and then your car’s cash value is entirely yours to use as you like. Typically, the loan terms allowable in Singapore are up to seven years, while lease terms are between two to five.

It’s also worth understanding what your car’s residual value is (what it’s worth when you dispose of it) because all cars depreciate, some faster than others. In Singapore, more popular brands like Toyota and Mercedes-Benz tend to hold their residual value on the second-hand market, while brands like Kia and Chevrolet might not. Check out SGCarMart’s used car listings to do a quick comparison which brands might be good buys by comparing the depreciation of each car.

To calculate the depreciation of cars in Singapore, use this formula:(Purchase Cost – Disposal Value) / No. of Years of Usage
If you are disposing the car at the end of the ten year COE tenure, the Disposal Value is the PARF Rebate + Body Value of the car.

Insurance and Taxes

Whether you finance a purchase or get a lease, you’ll be subject to mandatory motor insurance requirements. This means while the finance company or bank still fully or partially owns your car, you’ll need to guard it against loss.

If you lease your car, the company providing you the lease typically will be covering the insurance cost and is factored into your monthly lease payment. For your purchase, you’d need to figure out an insurance plan that would be suitable for your requirements. This generally means scouting around for the best deals.

If you’re owning the car, you’d also need to renew your road tax on time while for leases, the administrative burden of vehicle ownership in Singapore will typically be handled by the leasing company.

Other Costs?

Don’t forget the basic ownership costs of maintaining your vehicle as long as you keep it in your stable. While this tends to depend on driving style and usage of the car but a ballpark figure per year would run into an average of $1,200-$1,800. A car servicing which includes changing your engine oil and oil filters, point checks will set you back around $200 – $400 every 6 months or 10,000km. Your tyres will cost anywhere from $200 per piece all the way to $800 per piece, depending on the make and size of it, and last up to a year or two.

Meanwhile, most leasing companies have all maintenance and wear and tear (including replacement of tyres) covered in their lease rates, so you don’t really need to be concerned. At least we do.

So With All These, Now What?

Lease if:

You want a car immediately but can’t afford the downpayment for a purchase.

You are not staying in Singapore for long and do not want to have the hassle of selling the car when you leave.

You want a nicer car and can afford the monthly payments but not a downpayment.

You want someone to look after the ownership of the car (maintenance, taxes, insurance) and just focus on the utility.

Buy if:

You want to keep the car for more than 3 years and build ownership equity.

You want to customize the car to your liking and probably hold it to the end of its life.